Second wave of US LNG to be based on 'free' gas: NextDecade Corp

Lisbon (Platts)--30 Nov 2017 425 pm EST/2125 GMT

The 'second wave' of US LNG production is coming in the early 2020s and will be based on essentially free gas, according to project developers NextDecade Corp.

Speaking at the CWC LNG Summit in Lisbon Thursday, NextDecade CEO Kathleen Eisbrenner said her company had "the lowest cost, reliable LNG project in the world," and that it would be "the leader of the second wave of US LNG."

That US LNG can be the world's lowest cost is a big claim, especially when set against the riches of Qatar's North Field and Iran's geologically connected South Pars. This giant gas accumulation produces large quantities of natural gas liquids (NGLs), which effectively underpins the production of LNG with large economies of scale.

However, similar claims are being made by NextDecade about US LNG, as well as by another US second wave development company Tellurian.

The basic argument is that gas output from the Permian basin, the US shale oil industry's hottest hot spot, is going to rise hugely, not because it is necessarily wanted, but because it will be produced as associated gas alongside the oil.

According to Eisbrenner, drilling and completion spending in the Permian basin will double year-on-year in 2018 to make up 44% of all US D&C spending, up from just 20% in 2014.

The gas produced cannot be reinjected, and it cannot be flared for more than very short periods. It must, therefore, be evacuated. Producers will pay for it to be taken away.

Eisbrenner said that gas production in the Permian Midland would have a breakeven cost of negative $6.31/MMBtu. She estimated breakeven for gas production in the Permian Delaware at negative $2.69/MMBtu.

Whether or not these calculations really stand up to scrutiny, the prospect of big increases in Permian basin gas production has prompted a plethora of new pipeline proposals to take that gas to a market or a point where markets can be accessed.

Four projects, with total capacity of 6.4 Bcf/d, have been proposed between Waha and Agua Dulce on the Gulf Coast, but the gas will still need to be used and, most likely, liquefied for export.

Eisbrenner is promoting Rio Grande, a huge 27 million mt/year LNG development near Brownsville based on six 4.5 million mt/year LNG trains.

She says that, if the company builds two trains, costs will be $500/mt. If three trains are approved, costs would fall to $450/mt.

Process optimization using well proven, reliable technology will ensure both lowest cost capital and operational expenditure, in a location that carries much less geopolitical risk than either Iran or Qatar, she said.

--Ross McCracken,

--Edited by Alisdair Bowles,

Copyright © 2018 S&P Global Platts, a division of S&P Global. All rights reserved.